National Australia Bank Ltd v Firewood Processors Pty Ltd
[2003] WASC 88
NATIONAL AUSTRALIA BANK LTD -v- FIREWOOD PROCESSORS PTY LTD & ORS [2003] WASC 88
| SUPREME COURT OF WESTERN AUSTRALIA | Citation No: | [2003] WASC 88 | |
| Case No: | CIV:1270/2002 | 16 JANUARY 2003 | |
| Coram: | ACTING MASTER DIXON | 22/05/03 | |
| 25 | Judgment Part: | 1 of 1 | |
| Result: | Extension of time granted to bring summary judgment application Summary judgment granted | ||
| B | |||
| PDF Version |
| Parties: | NATIONAL AUSTRALIA BANK LTD (ACN 004 004 937) FIREWOOD PROCESSORS PTY LTD (ACN 081 516 770) ARTHUR THOMAS HENSON HARRY ROY HOPES |
Catchwords: | Leave to bring application for summary judgment Summary judgment Requirements of affidavits in opposition Discharge of guarantees Fiduciary duty owed by a bank to its customer Turns on own facts |
Legislation: | Nil |
Case References: | Ankar Pty Ltd v National Westminster Finance (Aust) Ltd (1987) 162 CLR 549 British Motor Trust Co Ltd v Hyams (1934) 50 TLR 230 Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 Derry v Peek (1889) 14 App Cas 337 Eng Mee Young v Letchumanan [1980] AC 331 Hancock v Williams (1942) 42 SR(NSW) 252 Lewkowski v Bergalin, unreported; SCt of WA; Library No 8488; 26 May 1989 Oldfield Knott Architects Pty Ltd v Oritz Investments Pty Ltd [2000] WASCA 255 Smith v Town & Country Bank, unreported; SCt of WA; Library No 970716, 18 February 1997 Webster v Lampard (1993) 177 CLR 598 Whitehall Holdings Pty Ltd v Ravi Nominees Pty Ltd, unreported; SCt of WA; Library No 91895; 13 December 1991 Woodhall Ltd v The Pipeline Authority (1979) 53 ALJR 487 Aberdeen Railway Company v Blackie Brother (1854) 23 Lt (OS 315 Boardman v Phipps [1967] AC 46 Canadian Aero Service Ltd v O'Malley (1973) 40 DLR (3d) 371 Canson Enterprises Ltd v Boughton & Co (1991) 85 DLR (4th) 129 Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 Concrete Constructions (NSW) Pty Ltd v Nelson (1990) 169 CLR 594 Const v Harris (1824) T & R 496 Crabtree-Vickers Pty Ltd v Australian Direct Mail Advertising & Addressing Co Pty Ltd (1975) 133 CLR 72 Derry v Peek (1889) 14 App Cas 337 Ex parte Adamson (1878) 8 Ch D 807 Formento (Sterling Area) Ltd v Selsdon Fountain Pen Co Ltd [1958] 1 WLR 45 Freeman v Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480 Gentry Bros Pty Ltd v Wilson Brown & Associates Pty Ltd (1992) ATPR 41-184 Green and Clara Pty Ltd v Bestobell Industries Pty Ltd [1982] WAR 1 Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41 Illingworth v Holdsworth [1904] AC 355 Kinsela v Russell Kinsela Pty Ltd (In Liq) (1986) 4 ACLC 215 Lac Minerals Ltd v International Corona Resources Ltd (1989) 61 DLR (4th) 14 Mahesan v Malaysia Government Officers' Co-operative Housing Society Ltd [1978] 2 All ER 405 McDonald's System of Australia Pty Ltd v McWilliams' Wines Pty Ltd (1979) 49 FLR 455 Nocton v Lord Ashburton [1914] AC 932 Overseas Tankship (UK) Ltd v Morts Docks & Engineering Co Ltd (The Wagon Mound No 1) [1961] AC 388 Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 199 Re Dawson; Union Fidelity Trustee Co v Perpetual Trustee Co (1966) 84 WN (pt I) (NSW) 399 Royal British Bank v Turquand (1856) 6E & B 327 Taco Company of Australia Inc v Taco Bell Pty Ltd (1982) ATPR 40303 United Builders Pty Ltd v Mutual Acceptance Ltd (1980) 144 CLR 673 Weitmann v Katies Ltd (1977) 29 FLR 336 |
JURISDICTION : SUPREME COURT OF WESTERN AUSTRALIA
- IN CHAMBERS
- Plaintiff
AND
FIREWOOD PROCESSORS PTY LTD (ACN 081 516 770)
First Defendant
ARTHUR THOMAS HENSON
Second Defendant
HARRY ROY HOPES
Third Defendant
Catchwords:
Leave to bring application for summary judgment - Summary judgment - Requirements of affidavits in opposition - Discharge of guarantees - Fiduciary duty owed by a bank to its customer - Turns on own facts
(Page 2)
Legislation:
Nil
Result:
Extension of time granted to bring summary judgment application
Summary judgment granted
Category: B
Representation:
Counsel:
Plaintiff : Ms N J Wigg
First Defendant : No appearance
Second Defendant : In person & Mr N K Chin, articled clerk, Ozich & Co
Third Defendant : No appearance
Solicitors:
Plaintiff : Phillips Fox
First Defendant : No appearance
Second Defendant : In person
Third Defendant : No appearance
Case(s) referred to in judgment(s):
Ankar Pty Ltd v National Westminster Finance (Aust) Ltd (1987) 162 CLR 549
British Motor Trust Co Ltd v Hyams (1934) 50 TLR 230
Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447
Derry v Peek (1889) 14 App Cas 337
Eng Mee Young v Letchumanan [1980] AC 331
Hancock v Williams (1942) 42 SR(NSW) 252
Lewkowski v Bergalin, unreported; SCt of WA; Library No 8488; 26 May 1989
Oldfield Knott Architects Pty Ltd v Oritz Investments Pty Ltd [2000] WASCA 255
Smith v Town & Country Bank, unreported; SCt of WA; Library No 970716, 18 February 1997
(Page 3)
Webster v Lampard (1993) 177 CLR 598
Whitehall Holdings Pty Ltd v Ravi Nominees Pty Ltd, unreported; SCt of WA; Library No 91895; 13 December 1991
Woodhall Ltd v The Pipeline Authority (1979) 53 ALJR 487
Case(s) also cited:
Aberdeen Railway Company v Blackie Brother (1854) 23 Lt (OS 315
Boardman v Phipps [1967] AC 46
Canadian Aero Service Ltd v O'Malley (1973) 40 DLR (3d) 371
Canson Enterprises Ltd v Boughton & Co (1991) 85 DLR (4th) 129
Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447
Concrete Constructions (NSW) Pty Ltd v Nelson (1990) 169 CLR 594
Const v Harris (1824) T & R 496
Crabtree-Vickers Pty Ltd v Australian Direct Mail Advertising & Addressing Co Pty Ltd (1975) 133 CLR 72
Derry v Peek (1889) 14 App Cas 337
Ex parte Adamson (1878) 8 Ch D 807
Formento (Sterling Area) Ltd v Selsdon Fountain Pen Co Ltd [1958] 1 WLR 45
Freeman v Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480
Gentry Bros Pty Ltd v Wilson Brown & Associates Pty Ltd (1992) ATPR 41-184
Green and Clara Pty Ltd v Bestobell Industries Pty Ltd [1982] WAR 1
Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 41
Illingworth v Holdsworth [1904] AC 355
Kinsela v Russell Kinsela Pty Ltd (In Liq) (1986) 4 ACLC 215
Lac Minerals Ltd v International Corona Resources Ltd (1989) 61 DLR (4th) 14
Mahesan v Malaysia Government Officers' Co-operative Housing Society Ltd [1978] 2 All ER 405
McDonald's System of Australia Pty Ltd v McWilliams' Wines Pty Ltd (1979) 49 FLR 455
Nocton v Lord Ashburton [1914] AC 932
Overseas Tankship (UK) Ltd v Morts Docks & Engineering Co Ltd (The Wagon Mound No 1) [1961] AC 388
Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 199
Re Dawson; Union Fidelity Trustee Co v Perpetual Trustee Co (1966) 84 WN (pt I) (NSW) 399
Royal British Bank v Turquand (1856) 6E & B 327
Taco Company of Australia Inc v Taco Bell Pty Ltd (1982) ATPR 40303
United Builders Pty Ltd v Mutual Acceptance Ltd (1980) 144 CLR 673
Weitmann v Katies Ltd (1977) 29 FLR 336
(Page 4)
1 ACTING MASTER DIXON: By way of an application dated 12 August 2002, the plaintiff ("the NAB") sought leave to bring an application for summary judgment and to enter judgment against the second defendant ("Mr Henson"). Put briefly, the facts of this matter are as follows:
(1) The third defendant ("Hopes") and Mr Henson were at all material times directors of the first defendant ("the company"). The business of the company involved the sale of firewood.
(2) On 11 November 1998 the company provided a fixed and floating charge over its assets to the NAB. Hopes and Mr Henson witnessed the affixing of the company seal.
(3) On 22 February 1999 the NAB approved the granting to the company of an overdraft facility with a limit of $150,000. That facility was to expire on 30 April 1999.
(4) Hopes and Mr Henson each guaranteed the obligations of the company pursuant to a guarantee and indemnity executed by them on 23 February 1999. The extent of their liability was limited to $150,000 plus, in effect, interest and costs.
(5) Thereafter the company drew moneys down against the overdraft facility.
(6) In or about April 1999 Hopes approached Michael James Clifford, an officer of the NAB, ("Mr Clifford") requesting an extension of the overdraft limit. According to Mr Clifford, the NAB was not prepared to grant a formal extension of the overdraft limit but allowed the company to exceed the limit to meet some immediate business expenses. This was conditional upon a mortgage provided by Laosong Pty Ltd over property in Carabooda that secured Hopes' personal overdraft with the NAB being used as security for the extended overdraft.
(7) According to Mr Henson, he knew nothing about Hopes' request to extend the overdraft, nor that the NAB had allowed the company to exceed its limit.
(8) The overdraft facility duly expired. Mr Clifford says in his first affidavit sworn 9 August 2002 that this was on 30 June 1999. This date may not be correct in that the overdraft facility approval advice annexed to Mr Clifford's first affidavit sworn 9 August 2002 gives an expiry date of
(Page 5)
- 30 April 1999. In any event, it is not disputed that the facility expired and by reason of moneys being due to the NAB at that time, the company was in default.
- (9) In June 2000 Hopes sold a substantial amount of company firewood and disappeared with the proceeds.
(10) By a demand dated 27 September 2000 the NAB made a demand against the company in respect of the overdraft facility in the sum of $325,525.99.
(11) Also by demand dated 27 September 2000 the NAB made a demand against Mr Henson pursuant to the guarantee and indemnity based upon the company's indebtedness to the NAB in the sum of $321,150.58. The amount sought was $174,270.24, comprising an amount of $150,000, interest of $23,475 and costs of $795.24.
(12) On 12 April 2002, the NAB obtained a default judgment against the company in the sum of $381,601.98 plus interest.
2 As I have said, these facts are largely not disputed. As such there is no dispute as to the entering to the overdraft facility by the company, that Mr Henson guaranteed the obligations of the company to the NAB, that the company exceeded the overdraft limit as set out above, that demands were made against the parties, and that the NAB has a judgment against the company in the sum of $381,601.98. There are, however, two principle areas where there is dispute between the NAB and Mr Henson. The first concerns the circumstances and the effect of the increase in the overdraft limit in or about April 1999. The second concerns the sale by Hopes in or about June 2000 of the company's firewood. As I have said, it seems that he retained the proceeds of the sale and has since left the jurisdiction. It is accepted by the parties that this firewood was the company's principle asset and the failure of Hopes to account for the proceeds following its sale was the cause of its inability to meet its obligations to the NAB. In issue is the role played by the NAB in the sale of that firewood and whether by reason thereof, there is a triable issue in the matter.
3 Before going any further, I should deal with the plaintiff's application for leave to bring the summary judgment application out of time.
4 Mr Henson entered his appearance on 21 March 2002 and therefore, pursuant to O 14 r 1 of the Rules of the Supreme Court, the NAB's application for summary judgment should have been filed by 11 April
(Page 6)
- 2002. The application was not filed until 12 August 2002, some four months later. The explanation for that delay is given in Mr Clifford's affidavit sworn 9 August 2002. In par 28.1 of that affidavit it is said that the delay in the bringing of the application was brought about by:
"28.1 The difficulty my solicitors and I were having obtaining the documentation in relation to the Overdraft Facility, Facility Agreement and Guarantee and Indemnity from the NAB;
28.2 The difficulty my solicitors were having locating the third defendant in this action in order to commence proceedings against him, so that the summary judgment application could be brought against both Guarantors at the same time;
28.3 I was on annual leave for four weeks in the months of April and May 2002 and was unavailable to swear my affidavit in support of summary judgment."
6 In my view the explanation for the delay is sketchy and barely adequate, particularly as regards to the period from mid-June to 12 August 2002. I accept that it was reasonable for the NAB to delay the making of an application against Mr Henson whilst it endeavoured to serve Hopes. I also accept the explanation for the delay arising from the NAB's officer being on leave and the difficulty in locating documents. It does seem, however, that these difficulties were resolved by mid-June at the very
(Page 7)
- latest. It is not entirely clear why there was delay from that time to 12 August 2002.
7 Despite this, I would give the NAB leave to bring the application for summary judgment. I am conscious in this respect that one of the issues to be taken into account in determining this question is whether there has been any prejudice to Mr Henson by reason of the delay. In my view there has not. Mr Henson is not represented and therefore has not incurred legal fees in defending the matter over the relevant period. Indeed, over the period in question nothing appears to have taken place in the litigation or otherwise which could have caused any prejudice to Mr Henson.
8 The other factor that I have borne in mind is that, for the reasons set out below, I do not consider that Mr Henson has raised a triable issue in the matter. Unless the NAB were to bring a further application with evidence that explains the delay, the effect of a refusal of leave would be to allow an action to proceed in which Mr Henson has no arguable defence. That would seem to me to be a quite pointless exercise.
9 Turning now to the application for summary judgment itself, it is appropriate that I say something briefly regarding the law. This was summarised by Seaman J in Whitehall Holdings Pty Ltd v Ravi Nominees Pty Ltd, unreported; SCt of WA; Library No 91895; 13 December 1991 at 9 as follows:
"The power to order summary judgment should be exercised with great care and should never be exercised unless it is clear that there is no real question to be tried: Fancourt v Mercantile Credits Ltd (1983) 154 CLR 87 at 99.
To obtain unconditional leave to defend the burden on the appellants is to establish an arguably good defence, or that the case ought to be heard (Clarke v Union Bank of Australia Ltd (1917) 23 CLR 5 at 8), or to establish a state of facts which displaced the prima facie effect of the statement or belief in the respondent's affidavit that there was no defence: Cloverdell Lumber & Co Pty Ltd v Abbott (1924) 34 CLR 122 at 123."
10 His Honour also dealt with what is required in respect of any affidavit sworn by a defendant in opposition to such an application. At 10 his Honour refers to Lewkowski v Bergalin, unreported; SCt of WA; Library No 8488; 26 May 1989:
(Page 8)
- "… which holds that affidavits in opposition should condescend to particulars and should so far as possible deal with the plaintiff's claim and state clearly what the defence is and what facts are relied upon as supporting it. However, the requirement is for a condescension to the particulars of an arguable defence, and not the defence in its complete form and a statement of the facts which go to show that it is arguable and not the facts which would be necessary to establish it at trial …"
11 It is clear that in considering these issues the Court cannot determine conflicts in affidavit evidence. In Webster v Lampard (1993) 177 CLR 598 at 608, Mason CJ, Deane and Dawson JJ proceeded on the basis that "it was incumbent on the Master, in the absence of an opportunity of cross-examination, to dispose of the case on the basis that … (the respondents') … version of the facts, which was not inherently incredible, would ultimately be accepted on the trial of the action." Having said that, however, I do not think that it follows that the Court must accept uncritically all matters deposed to by a defendant. The Privy Council in Eng Mee Young v Letchumanan [1980] AC 331 at 341 said in this context as follows:
"In the face of these vague, self-contradictory and implausible assertions on the part of the caveator, the judge accepted the sworn denial of the caveatees that they had ever agreed to any extension of the time of payment beyond September 28, 1974. Although in the normal way it is not appropriate for a judge to attempt to resolve conflicts of evidence on affidavit, this does not mean that he is bound to accept uncritically, as raising a dispute of fact which calls for further investigation, every statement on an affidavit, however equivocal, lacking in precision, inconsistent with the undisputed contemporary documents or other statements by the same deponent, or inherently improbable in itself it may be."
12 This statement was made in the context of an application to remove a caveat in which the caveator had to satisfy the Court that on the evidence before it there was a question to be tried as to whether he had an interest in the property and as to whether, on the balance of convenience, the caveat should be maintained. In my view it applies equally to summary judgment applications - see also Civil Procedure Western Australia at par 14.3.3.
(Page 9)
13 The notion that the Court does not have to accept a defendant's assertions uncritically applies particularly, in my view, where, as here, the defendant alleges that the plaintiff was guilty of fraud. As will become clear, Mr Henson alleges that Mr Clifford and therefore the NAB, was involved in a conspiracy with Hopes and another person to defraud him. It is clear in this respect that "the law attaches great significance and seriousness to allegations of fraud" - see Ipp J in Oldfield Knott Architects Pty Ltd v Oritz Investments Pty Ltd [2000] WASCA 255 at par [37]. In my view, where such allegations are made in opposition to an application for summary judgment, the matters sought to be relied upon and the evidence adduced by a defendant must be particularly clear.
14 Before turning to deal with the issues in the matter, I should refer briefly to a difficulty that I have faced in this matter. Mr Henson is unrepresented although it appears that he has received some assistance from a Mr Chin, a former law student, now an articled clerk. Mr Chin works at Ozich & Co, a firm that I understand has been providing advice to Mr Henson. As I understand it, Mr Henson prepared his first affidavit sworn 29 August 2002. It is not entirely clear who prepared Mr Henson's second affidavit, which I understand was sworn on 4 December 2002. Mr Chin then prepared Mr Henson's written submissions dated 9 December 2002. I gave Mr Chin leave to appear on Mr Henson's behalf at the hearing of the application as it seemed there was little prospect of Mr Henson addressing me on the submissions prepared by Mr Chin. Mr Henson also made submissions to me in the course of the hearing of the application.
15 Unfortunately, and with the greatest respect to both Mr Henson and Mr Chin, the affidavits and submissions relied upon by Mr Henson are contradictory and confusing. This has made it difficult to understand precisely what Mr Henson says is his defence to the claim. To compound these difficulties Mr Henson's affidavits contain irrelevant matters, conclusions of law, what are, in effect, submissions, and hearsay. Similarly the submissions dated 9 December 2002 set out factual matters that do not appear in Mr Henson's affidavits. Finally, at the hearing of the application Mr Chin and Mr Henson sought to put before me matters which are not dealt with at all in Mr Henson's affidavits and which differ from the contents of those affidavits.
16 In determining this matter I have sought to isolate what appear to be the real issues in the dispute, disregarding matters which appear to me to be irrelevant. I trust that I have understood the matters placed by Mr Henson before the Court.
(Page 10)
17 I have already set out the facts of the matter and what appear to me to be the two key issues, namely the circumstances and effect of the increase in the overdraft limit and the NAB's role in the sale by Hopes of company firewood. There appear to be a number of other issues which have been raised by Mr Henson, particularly in his first affidavit sworn 29 August 2002. As a result, the issues raised by Mr Henson appear to be as follows:
(1) The circumstances and effect of the increase in the overdraft limit;
(2) The circumstances surrounding the execution of the fixed and floating charge over the assets of the company;
(3) The circumstances surrounding the falsification of a receipt by Hopes from Worsley Timber;
(4) The circumstances and effect of the sale of company firewood by Hopes;
(5) The theft of a wood splitter machine by Hopes;
(6) The negligence of the company accountant, John Miller;
(7) The fraud committed by Hopes in inducing Mr Henson to become involved in a business and to invest substantial moneys in the business;
(8) The conduct generally of Hopes in the operation of the business.
I will deal with each of these in turn.
The circumstances and effect of the increase in the overdraft limit
18 As I have said, there is no argument as to the entry into the overdraft agreement by the company, nor that it was extended by Hopes with the result that the company's liability to the NAB was substantially more than the original overdraft limit of $150,000 as guaranteed by Mr Henson. Mr Henson says in this respect at par 2(a) of his affidavit sworn on 29 August 2002 that:
"The increase in the overdraft facility with the plaintiff from $150,000 to $283,383.66 was the responsibility of the third defendant (Harry) with the connivance of Michael, without my knowledge."
(Page 11)
19 In his second affidavit sworn 4 December 2002, Mr Henson says that Mr Clifford failed to disclose the application for the extension of the overdraft facility and its approval until forced to do so at a meeting in August 1999. He says that the increase materially altered the ability of the various parties to repay the facility. He says that by reason of the increase the NAB breached fiduciary duties owed to the company and to Mr Henson, that Mr Clifford was under a duty to disclose to Mr Henson "all material facts at all material times as will affect his financial situations with the lender", that Mr Clifford should have appreciated that Mr Henson was in a vulnerable position as a borrower in that he was less educated than the company accountant, Miller, and was therefore likely to be exploited financially by Miller and Hopes and that, in effect, Mr Clifford was aware of a conspiracy between Hopes and Miller to defraud Mr Henson which involved Miller failing to disclose certain matters to Mr Henson. It is also said that Mr Clifford had a conflict of interest in his dealings with Mr Henson in that he was aware that Miller was a shareholder in Laosong Pty Ltd, the company that had provided security for the increase, and that he, being Mr Clifford, was a friend of Miller. Mr Henson goes on to say that the NAB took insufficient security when increasing the overdraft and that by so doing, Mr Clifford favoured Hopes to the prejudice of Mr Henson. It is also said that Mr Clifford knew that Miller was making a secret profit from Mr Henson.
20 It is clear from the matters raised by Mr Henson, particularly in his submissions, that in his view, Hopes and Miller were involved in conspiracy to defraud him and that Mr Clifford was involved in that conspiracy either by reason of active involvement in it or by virtue of being aware of its existence when dealing with Mr Henson. It is suggested that Hopes, Miller and Mr Clifford were involved in activities which constituted the tort of deceit in that "they were done in contumelious disregard for the rights/obligations of" Mr Henson. Reference is made to Derry v Peek (1889) 14 App Cas 337.
21 I am not persuaded that there is anything in either of Mr Henson's affidavits that could give rise to a triable issue as to the NAB, via Mr Clifford, being involved in any conspiracy to defraud Mr Henson, that Mr Clifford had any knowledge of any conspiracy that may have existed between Hopes and Miller, or the increase of the overdraft being part of any conspiracy to defraud Mr Henson which involved Mr Clifford. The matters raised in this respect by Mr Henson consist of broad assertions which, so far as I can see, are unsupported by any facts put before the Court. I do not consider that Mr Henson has condescended to particulars in this respect and nor has he set out clearly the facts relied upon to
(Page 12)
- suggest that these materials give rise to an arguable defence. As I have already said, in my view, where serious allegations of fraud are made, the affidavit evidence relied upon must be particularly clear. In this case it is not. I am not obliged to accept uncritically what is said by Mr Henson in this respect. I do not consider that any matters raised by Mr Henson give rise to a triable issue in this regard.
22 Leaving aside the issue of fraud and the existence of a conspiracy against Mr Henson, I understand his position to be that he has been adversely affected by the increase of the overdraft. The NAB's position in this respect is that Mr Henson was not prejudiced by the increase of the overdraft in that his liability is fixed by reference to the amount due under the overdraft prior to its increase. The guarantee provides in this respect that the guarantor's liability is $150,000, that being the amount of the facility prior to its increase, plus interest, bank fees and the like, and costs. The amount of the demand, which is also the amount claimed in the writ, in the sum of $174,270.24, is made up of the sum of $150,000, interest of $23,475 and costs of $795.24. It is the case therefore that the NAB is not seeking to recover from Mr Henson any amount that reflects the increase in the overdraft itself. That said, however, it is not clear whether the interest component of $23,475 takes into account interest that accrued on the original amount of $150,000 or on the increased amount. I suspect that it may be the latter as in par 18.3.1(b) of the statement of claim the amount sought by way of interest is said to be "interest accrued at the rate of 15.65% per annum and unpaid by firewood (sic) between 27 September 1999 and 26 September 2000". The extension of the overdraft was agreed in April 2000. As such, it may in fact be the case that whilst Mr Henson's obligations to the NAB in relation to principal are unaffected by the increase of the overdraft, the interest component may well have been affected.
23 It may also be that Mr Henson's position as a guarantor has been adversely affected by the increase in a broader sense. For example, the increase of the overdraft may have resulted in the company being unable to service the overdraft, leading to a default and the calling up of the guarantee. Similarly, in other circumstances, security that may have been adequate in respect of an original overdraft amount may prove to be inadequate in the event of an increase to the overdraft, thereby causing there to be a shortfall following the realisation of the security that the guarantor is forced to meet. It is for these reasons that a guarantor may be discharged if there is a material change in the obligation undertaken by the principle debtor - see, for example, Hancock v Williams (1942) 42
(Page 13)
- SR(NSW) 252 at 255 and Ankar Pty Ltd v National Westminster Finance (Aust) Ltd (1987) 162 CLR 549 at 558 - 560.
24 A guarantee will not be discharged, however, if its terms provide that a variation in the obligation undertaken is not to discharge the guarantee - see, for example, Woodhall Ltd v The Pipeline Authority (1979) 53 ALJR 487 at 492 and British Motor Trust Co Ltd v Hyams (1934) 50 TLR 230.
25 Clause 13.2 of the guarantee provides as follows:
"13.2 Your obligations under the Guarantee and Indemnity are not affected by anything that might otherwise affect them under the law relating to sureties, including:
(f) a variation or extension to, or a stopping, replacement or refusal of any credit, banking facilities or other arrangement (including the granting or increasing by the Bank of any credit or banking facilities above the basic liability) given to the customer alone or with any other person whether with or without your consent or knowledge …"
27 There are a number of other broad issues sought to be raised by Mr Henson that I understand relate to the increase in the overdraft.
28 As regards the suggestion that Mr Clifford and therefore the NAB, had a conflict of interest in the matter, I simply do not understand the basis upon which that issue is raised, nor the evidence upon which it is based. I do not consider that there is any triable issue in this respect.
29 I understand it to be said by Mr Henson that the NAB, in its dealings with the company and Mr Henson, sought to take unfair advantage of its superior bargaining power and of the position of disadvantage in which the company and Mr Henson were placed. It appears to be said that Mr Henson was at a special disadvantage in his dealings with Mr Clifford, Hopes and the accountant. It is not clear in this respect whether this proposition, which appears in par 15 of Mr Henson's written submissions, applies to the original overdraft facility, the increase of the facility, the
(Page 14)
- NAB's actions in seeking to recover moneys from the company or Mr Henson, or other actions of the NAB following the increase of the overdraft. In any event, reliance is placed upon Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447.
30 It is simply not clear to me as the basis upon which it is said that Amadio applies. There is nothing that I have seen to suggest that the NAB, aware of the possibility that either the company or Mr Henson were at a special disadvantage, took unfair advantage of its superior bargaining power or position in entering into a transaction with either the company or Mr Henson. There is nothing to suggest that the original overdraft facility, the extension or the guarantee were entered into in these circumstances.
31 I have already mentioned that Mr Henson has suggested that the NAB breached fiduciary duties owed to the company and to him. To the extent that it is relevant, I do not consider it arguable that any fiduciary duty was owed by the NAB to the company. The question of whether a bank owes such a duty to its customer was considered in Smith v Town & Country Bank, unreported; SCt of WA; Library No 970716, 18 February 1997. At 38 the Chief Justice referred to the reasons of the Master at first instance as follows:
"The learned Master dealt with this allegation as follows:
'Did the Bank owe any fiduciary obligation to the plaintiffs? The most common fiduciary relationships are relationships of trust and confidence or confidential relations eg trustee and beneficiary, agent and principal, solicitor and client, employee and employer, director and company, and partners. The critical feature of these relationships is that the fiduciary undertakes or agrees to act for and on behalf of, or in the interests of, the other person. The relationship between the parties is one which gives the fiduciary a special opportunity to exercise the power of discretion given to him to the detriment of that other person who is accordingly vulnerable to abuse by the fiduciary of his position: see Hospital Products Ltd v United States Surgical Corporation (1984) 156 CLR 4 at 96-97 Mason J. I am also aware that the categories of fiduciary relationships are not closed: (ibid at 96). This does not mean that every agent is a fiduciary: ibid at 71 and 72 per Gibbs CJ. Although the categories of fiduciary relationships are not
(Page 15)
- closed, in fact there are not many cases outside the accepted categories where the courts have found fiduciary relationships to exist: Meagher, Gummow & Lehane, Equity Doctrines & Remedies, (3rd ed) para 503. In the circumstances of this case I fail to see how it can be said that the bank owed fiduciary obligations to the plaintiffs. The plaintiffs were not in a specially vulnerable position vis-à-vis the bank. They wanted the loan. It was for their benefit, unlike a guarantee case where the guarantors gains nothing material from the loan and where the bank want the guarantee (or a third party mortgage) to increase its security. The Smiths knew their own farm. They had been farming for some time. Mr Smith was aged 49 and had extensive farming experience. Mrs Smith set that out on the application form. This was not a case where the bank knew a lot more about the business of the principal debtor (and its financial risks) and the guarantor. Leighton had no experience in farm management.'
- In my opinion the conclusions of the learned Master were clearly correct. It followed from his conclusions with respect to paras 20 and 22 that para 23 gave rise to no cause of action."
32 Whilst the precise circumstances surrounding the extension of the overdraft are clear, I have seen nothing to suggest that fiduciary obligations were owed by the NAB to the company nor to Mr Henson as a director.
33 As regards whether the failure to advise Mr Henson of the extension may have amounted to a breach which may impact upon the guarantee that he provided to the Bank, I have already said why, in my view, the increase of the overdraft did not affect the guarantee. To the extent that the complaint may be that Mr Henson was not advised of this, I note that cl 13.2 of the guarantee provides as follows:
"13.2 Your obligations under this guarantee and indemnity are not affected by anything that might otherwise affect them under the law relating to sureties, including:
(g) the fact that the Bank transacts any business with or on account of the customer alone or with any other person whether with or without your consent or knowledge."
(Page 16)
34 In light of that, it seems to me that the guarantee will be unaffected by any failure on the part of the NAB to advise Mr Henson of the increase of the overdraft.
35 I trust that I have understood the arguments put by Mr Henson in relation to the increase of the overdraft. Ultimately, however, and based on the matters deposed to Mr Henson's affidavits, I am not satisfied that he has raised any triable issue in this respect.
The circumstances surrounding the execution of the fixed and floating charge over the assets of the company
36 This issue does not appear to be pressed in the submissions, however, I will deal with it as it was raised in Mr Henson's first affidavit. He says in par 2.d of the affidavit that the fixed and floating charge was "executed by Harry alone with the connivance of the plaintiff without my consent as I am the only other director of the Firewood company." Clifford in his further affidavit sworn 4 November 2002 deposes to Mr Henson having witnessed the affixing of the company seal to the charge. Annexed to the affidavit is a copy of the charge. On that basis he disputes that Mr Henson had no knowledge of the charge. Mr Henson does not appear to take any issue with this in his second affidavit and in light of that I do not believe that this could give rise to a triable issue.
The falsification of a receipt from Worsley Timber by Hopes
37 Again I do not understand this to be an issue in Mr Henson's submissions, however, it is raised in par 2(b) of his first affidavit. It appears to be said that Mr Henson and his wife purchased timber from Worsley Timber and received a receipt for an amount of $200,000. Hopes may then have altered the receipt which he used to misrepresent to the NAB that the company had purchased the timber. The timber was used by Hopes in order to provide additional security to the NAB. Mr Henson was unaware of this and, as a result, did not consent to it.
38 It is clear that any wrongdoing in this respect was on the part of Hopes who, it is said, misled the NAB. I do not see that this matter could give rise to a defence against the NAB's claim.
(Page 17)
The sale of company timber by Hopes
39 This is the second key issue raised by Mr Henson. It is common ground that at all material times the NAB had a fixed and floating charge over the assets of the company. I also understand it to be common ground that the charge was floating only in relation to company firewood as the company needed to deal with the firewood in the ordinary course of its business. Unfortunately, the company firewood was sold by Hopes in June 2000. He retained the proceeds and disappeared. He cannot now be found. This is the cause of the company's inability to meet its obligations to the NAB. Mr Henson blames the NAB for Hopes' actions.
40 The difficulty I have had with this aspect of the matter is in understanding exactly what is Mr Henson's case due to inconsistencies between his affidavits, written submissions and submissions made on his behalf and by him at the hearing. In his first affidavit sworn 29 August 2002 Mr Henson says as follows:
"2e. The plaintiff was negligent in not ensuring that after Michael gave permission to the firewood company to sell the firewood (at Jarrahdale approximately 3,000 tons and at Boddington approximately 3,000 tons) totalling 6,000 tons, the proceeds of which should have been used to reduce the debt of the firewood company to the plaintiff.
f. Michael had advised me by phone that my permission to the plaintiff and Harry to sell the firewood was conditional on the said proceeds being used to reduce the debt of the firewood company owing to the plaintiff.
g. The Plaintiff was negligent in that it did not follow up on the proceeds of the said sale of the firewood so as to reduce the said debt.
h. It is unconscionable for the plaintiff, which has a floating charge or security over the said firewood to omit to do this as the plaintiff had notice that Harry did not have the property of the said firewood and it was not his to sell.
i. The plaintiff was negligent in that its agent Michael had acted contrary to my instructions to reduce the said debt by allowing only Harry to sell the said firewood.
(Page 18)
- j. This is despite the fact that the plaintiff through its agent Michael should have known or is reasonably expected to have known, having regard to the particular circumstances of the case, that it would be likely that Harry would run away with the proceeds of the firewood sale and leave the firewood company, the bank and myself in the lurch.
k. It was reasonable for me to expect that the plaintiff would notify me as its principal debtor and as the only other director of the firewood company that the sale of the said firewood would be proceeded with by Harry alone and without my consent."
41 In this context "Michael" is Mr Clifford. It appears to be said in these paragraphs that the NAB was negligent in letting the company or Hopes sell the firewood after Mr Henson had agreed to a sale by the NAB and Hopes and in not ensuring that the proceeds of the sale were used to reduce the company debt. However, it is not clear from these paragraphs how and when Mr Clifford gave permission to the company to sell the firewood, nor as to the circumstances in which Mr Henson instructed Mr Clifford that the firewood could be sold by the NAB and Hopes. Nor is it clear why Mr Clifford should have known that Hopes would disappear with the proceeds of the sale of the firewood, and why the NAB was under a duty to ensure that these proceeds were used to reduce company debt.
42 When the application first came on for hearing on 5 November 2002 I gave Mr Henson leave to file a further affidavit, in part because of the difficulty I had in understanding the matters deposed to in his first affidavit. In his second affidavit sworn 4 December 2002 Mr Henson deposes as follows in relation to this aspect of the matter:
"25. 'Mike' convened a meeting in August 1999 at his Booragoon Office and those present were the Second Defendant, his wife and the Third Defendant. Mike said to those present at that meeting that he had the authority to put a lock on the gates at the places where the 'firewood stocks' are kept. He said that he could do that in order to prevent the Second Defendant from dealing with those assets of the First Defendant.
(Page 19)
- 26. However, 'Mike' said that he would not stop the 'Accountant' and the Third Defendant and this meant that the two members of the defrauding parties could help themselves to the 'firewood stocks' of the First Defendant. The basis for his argument in preferring the defrauding parties' cases instead of the Second Defendant is that Second Defendant would be more likely to run away with the money to be derived from the sale of the 'firewood stocks' whereas the defrauding parties would be likely than not to repay the NAB Overdraft with the proceeds of the sale of those stocks. This had never happened and the history of the events had proven that 'Mike' was not the wiser to arrive at such an 'aberrant conclusion'. So it may be reasonably inferred that 'Mike' did help the Third Defendant and the 'Accountant' to defraud the Second Defendant of his property in the 'firewood stocks' which are also the assets of the First Defendant, after all.
Different understandings of Second Defendant and Third Defendant as to the meaning of 'crystallization' of the floating charge:
27. The Second Defendant went away from that August, 1999 meeting with 'Mike' with the understanding that 'firewood stocks' had been crystallized by NAB. However, the Third Defendant went away from that meeting with a different understanding that although a floating charge is on, it had not been 'crystallized' yet at the material times."
43 It is not clear what prompted the calling of this meeting though it is not unreasonable to assume that it was related to financial difficulties being encountered by the company. Mr Henson's position appears to be that Mr Clifford preferred that the firewood be sold by Hopes and Miller as opposed to Mr Henson as they were more likely to use the proceeds of sale to reduce the company's indebtedness. Whether that was actually said by Mr Clifford or is simply a conclusion drawn by Mr Henson is not clear. Mr Henson goes on to say that as a result of being given the impression that the charge over the firewood had crystallised, he did not take any steps to sell the firewood on behalf of the company, the proceeds of which he would have used to reduce the company's indebtedness to the NAB. It seems, however, that he and his wife did remove and sell some firewood that may have belonged to them.
(Page 20)
44 It is important to note that this meeting took place in August 1999. It was not until June 2000 that Hopes sold the company firewood and disappeared with the proceeds. Mr Henson seeks to blame the NAB for the loss of those proceeds, saying in par 30 of his affidavit that Hopes and the accountant "became unjustly enriched as a result of the direction given by 'Mike' to remove and dispose of 'firewood stocks' without disclosing this to the Second Defendant at all material times." It is not clear exactly what "direction" is being referred to here and whether it is said that Mr Clifford, having given a direction to Hopes to sell the firewood, failed to disclose to Mr Henson that he had made such a direction, or whether the failure to disclose relates to Hopes' failure to disclose that he was removing and selling firewood.
45 In any event, it is clear that this account of the circumstances that resulted in the sale of company firewood by Hopes is different from that set out in Mr Henson's first affidavit. Whilst Mr Henson deposes in that affidavit that he in some way or other consented to the sale of company firewood by the NAB and Hopes on the basis that the proceeds would be used to reduce company debt, in his second affidavit he appears to proceed on the basis that Mr Clifford encouraged Hopes and the accountant to sell firewood whilst effectively preventing Mr Henson from doing so. There is no suggestion of Mr Henson consenting to such a sale on certain terms.
46 The difficulty in determining Mr Henson's case in this respect is further compounded by matters put to me in the course of the hearing by Mr Henson and Mr Chin. The following exchange took place as regards what occurred at the meeting with Mr Clifford in August 1999 (at page 64 of the transcript):
"THE ACTING MASTER: But he said at that meeting that Mr Hopes could sell the firewood.
HENSON, MR: He didn't actually say it in so many words. I know it comes out like that but he's proved that he's let Harry take the wood.
THE ACTING MASTER: Your affidavit says:
However, Mike said he would not stop the accountant and the third defendant ---
(Page 21)
- HENSON, MR: Providing they paid the money back into the business. That was the idea of it and I didn't have a problem with that.
THE ACTING MASTER: That's right. That seems quite reasonable. What he is saying is, 'Well, the firewood can be sold as long as the proceeds go back into the business.'
HENSON, MR: Well, why didn't he make sure that the money went back into the business?
THE ACTING MASTER: How would he do that?
HENSON, MR: He told me that he was going to make sure that it was.
THE ACTING MASTER: But how should he have done that in relation to Mr Hopes?
HENSON, MR: He told me that he was going to make sure that it was.
THE ACTING MASTER: But how should he have done that in relation to Mr Hopes?
HENSON, MR: Because he was well aware of Harry's situation at that time.
THE ACTING MASTER: What situation?
HENSON, MR: Harry had a property at Carrabooda which was in debt to the bank and he knew that it was in debt to the bank and yet he still allowed Harry to put that up as security. Then in a year's time later ---
THE ACTING MASTER: Isn't the problem that - the company makes money by selling firewood.
HENSON, MR: That's correct; and they were selling the firewood that my wife and myself had bought separate to those first lot of stocks."
47 Similarly, in the same context at page 65 of the transcript, the following exchange occurred:
(Page 22)
- "THE ACTING MASTER: Yes, but the point I'm making is that he hasn't said there ---
HENSON, MR: It's not explained very well.
THE ACTING MASTER: --- that he has told you that the charge is fixed, and in the following paragraph what the affidavit says is:
However, Mike said he would not stop the accountant and third defendant.
As I understand it, what you're now saying is that what he said was, 'They can sell the wood as long as the proceeds come back into the company.'
HENSON, MR: That was my understanding of it. Any wood that was sold, the money had to be paid into the bank.
THE ACTING MASTER: Which is appropriate.
HENSON, MR: Yes, but why did Mike allow Harry Hopes a year later to remove that firewood when that account had never been paid? If I can just say to you, there's 3000 tonnes of firewood there. There's 3000 tonnes there which is frozen. I've got 20,000 tonnes over here which we had purchased, with my wife."
48 Those exchanges appear to cast some doubt on the matters deposed in Mr Henson's second affidavit and as to precisely what was said by Mr Clifford in the course of the August 1999 meeting. It appears to be suggested that rather than a sale of firewood being imposed upon Mr Henson, he had no difficulty with firewood being sold by Hopes and Miller (rather than the NAB and Hopes as deposed to in Mr Henson's first affidavit), and that the failure of the NAB was in failing to ensure that the proceeds from the sale were used to reduce company debt.
49 Mr Chin (at page 51 of the transcript) put the matter somewhat differently in asserting that Mr Clifford "knowingly allowed those firewood assets to be stolen" as a result of "holding secret deliberations without the knowledge of Mr Henson". As evidence of this, in the course of the hearing Mr Chin and Mr Henson raised a further matter regarding the circumstances surrounding the sale of the firewood. According to Mr Henson, he attended at the premises where the firewood was stored
(Page 23)
- and found Hopes in the process of stealing it. I assume that he means that Hopes was in the process of removing the firewood. I also assume that this was in June 2000. Mr Henson subsequently received a telephone call from Mr Clifford who informed him that he had authorised the sale of the firewood by Hopes. The company accountant, Miller, also rang Mr Henson to confirm this.
50 It is not clear whether this conversation between Mr Clifford and Hopes is the conversation referred to in Mr Henson's first affidavit, or whether it is a different conversation altogether, not deposed to at all in Mr Henson's affidavits. In any event, I am not satisfied that there is any basis to find a triable issue in this respect. Not only are these matters not deposed to on affidavit, there is nothing in the affidavits sworn by Mr Henson that could, if accepted, support a finding that Mr Clifford was involved in any conspiracy or arrangement with Hopes pursuant to which Hopes was to steal the firewood.
51 Having regard to the various matters deposed to by Mr Henson and put by him or on his behalf in the course of the hearing, I am simply unsure as to the background to the sale of company timber by Hopes and more particularly, as to the nature of discussions had regarding the sale of the timber which involved Mr Henson and Mr Clifford. It is not clear whether Mr Clifford imposed a sale upon Mr Henson or whether, as is suggested in his first affidavit, Mr Henson was agreeable to a sale but only in certain circumstances.
52 In light of that, it cannot be said, in my view, that Mr Henson has set out clearly any defence that he has in this respect and the facts relied upon in support of that defence. Nor, in my view, do any of the matters raised by Mr Henson or on his behalf at the hearing of the matter assist him in this respect.
53 It does appear, however, that irrespective of how the firewood came to be sold by Hopes, Mr Henson's complaint, in part, relates to the NAB's failure to ensure that the proceeds of the sale were used to reduce company debt. The difficulty with this is that without understanding what Mr Henson says was the NAB's role in the sale of the firewood, it is not possible to determine whether the NAB may have owed any duty as regards the proceeds of sale and whether such a duty may have been breached. Aside from this and to the extent that Mr Henson's complaint relates to the conduct of the NAB in relation to the security it held over the firewood, I note that cl 13.2 of the guarantee also provides as follows:
(Page 24)
- "13.2 Your obligations under this guarantee and indemnity are not affected by anything that might otherwise affect them under the law relating to sureties, including:
(c) the fact that, in relation to any amounts which the customer owes the Bank or any security, guarantee or indemnity for them, the Bank:
(ii) gives up, releases, varies or exchanges, or fails to obtain, perfect, register or realise, or deals in any other way with any security …"
The theft of a wood splitter machine by Hopes
55 In par 2.1 of Mr Henson's first affidavit it is said that a wood splitter machine which was an asset of the company was stolen by Hopes. There is no suggestion of any wrongdoing on the part of the NAB in this respect and I do not see that this could give rise to any triable issue.
The negligence of the accountant to the company
56 As will be apparent from these reasons, Mr Henson has made numerous allegations in respect of the company accountant who, it is said, was involved in a conspiracy to defraud Mr Henson and who also owed certain duties to him which he breached. I have already found that there is no evidence that could give rise to an arguable case that the NAB was involved in any conspiracy to defraud Mr Henson. The actions of the accountant and the breach of any duties he may have owed to Mr Henson do not, in my view, give rise to any triable issue as regards a defence of the NAB's claim against Mr Henson.
The conduct of Hopes generally
57 Mr Henson, in his first affidavit, suggests that Hopes engaged in fraudulent conduct in order to induce him to invest moneys in the business and that he was also guilty of such conduct in the operation of the business generally. Again, in light of the fact that I do not believe that
(Page 25)
- there is any evidence that could suggest that the NAB was involved in any conspiracy with Hopes, I do not believe that the conduct of Hopes either prior to Mr Henson becoming involved in the business or during the running of the business would give rise to any triable issue.
Conclusion
58 In light of the matters set out above, I would extend time for the NAB to bring the application for a summary judgment to 12 August 2002. As regards the application itself, I am not satisfied that Mr Henson has raised any triable issue in respect of the claim against him by the NAB. I would not give Mr Henson leave to defend the action and consider that judgment should be entered for the plaintiff in the sum of $174,270.24, together with interest and costs.
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